Crushing expectations

It's tough to argue with the euphoric reviews. Ten of the 11 S&P 500 sectors increased profits by double-digits during the second quarter, led by surging growth from energy companies thanks to vastly higher oil prices.

The earnings results have been better than anticipated: 79% of S&P 500 companies have beaten Wall Street's expectations. That would be the highest percentage since FactSet started tracking the stat in 2008, taking out the first quarter's record.

The success has been driven in part by the corporate tax cut, which lowered the rate from 35% to 21%. A big chunk of those tax savings have gone to the bottom line and to stock buybacks, which boost per-share earnings. Stock buybacks could exceed $1 trillion this year for the first time ever.

But companies aren't just raking in monster profits because they're paying Uncle Sam less. Sales, often a better measure of overall health, are also jumping, as the economy grew at the fastest pace since 2014. S&P 500 revenue is on track to rise by nearly 10% in the second quarter, the most since 2011, according to FactSet.

"There's a very favorable backdrop for companies, small, medium and large. It's pretty impressive," said Joe Quinlan, head of market strategy at Bank of America's US Trust.

Wage hikes wiped out by inflation

Although companies are minting money, there's a reason workers may not be feeling a bump in their paychecks: Inflation is heating up.

Real average hourly earnings -- which factors in inflation -- dropped by 0.2% in July from last year, according to the Labor Department. That's because consumer prices, excluding volatile food and energy expenses, jumped in July by the most since September 2008.

Analysts said companies have navigated the worker shortage by relying on technology and hiring people who have dropped out of the workforce at lower wages. That strategy helped push S&P 500 profit margins to a record high last quarter, according to Goldman Sachs.

Trade war not dinging overall profits -- yet

So will the incredible profit growth continue?

One obvious threat is the explosion of tariffs during the trade fights with China, the European Union and other trading partners. Some iconic American companies, including Harley-Davidson, General Motors and Whirlpool, have warned they are getting squeezed by higher raw material prices.

However, the trade wars have not yet had a dramatic impact on actual results nor on the outlook for future profits.

"A lot of these costs are going to be passed on to the consumer. There hasn't been a big margin squeeze yet," said Quinlan.

Much will depend on whether trade tensions deepen. Goldman Sachs warned in a recent note that earnings growth will vanish in 2019 if a 25% tariff is levied against all imports from China. Under that negative scenario, Goldman said the S&P 500 could plunge by 17% from current levels.

Of course, if trade tensions with China ease, the stock market could be in store for a relief rally.

Another major question is whether the American economy can continue to grow at a rapid pace as the worker shortage worsens and interest rates rise.

Goldman Sachs believes earnings growth will "decelerate sharply" in 2019 as the US economy slows and the sugar rush from tax cuts fades.

If that happens, investors may look back on this period as the peak of earnings growth.